China extends deadline on ship scrapping and newbuilding subsidy scheme

China has extended a scrap-and-build policy due to be expired in 2015 by two years to 2017, according to the ministry of transport.

In a short statement announced on Tuesday, the ministry said the policy has been extended to 31 December 2017, while the content of the policy remains unchanged.

In late 2013, Beijing revealed this scrap-and-build policy to subsidise owners who demolish their older vessels before their operational expiry dates, and to build new, more energy efficient ships as a replacement.

The policy was initially set to run until the end of this year. A few state-owned shipping conglomerates such as China Cosco, China Shipping Development Co (CSDC) and China Shipping Group have benefitted from receiving the subsidies.

In March this year, Gao Yanming, chairman of Hebei Ocean Shipping Co (Hosco) Group, had urged the government to extend for policy deadline to end-2018, so as to prevent owners from adding on to the tonnage supply.

The scrap-and-build policy states that a two-tranch subsidiy scheme will be given to owners with the first tranch dished out upon completing the demolition of an elderly vessel. The second tranch will be handed out after an order confirmation for a new replacement vessel.

Gao had said that while the subsidy end date for the ship demolition would work, the subsidy deadline for firming a newbuilding order will only serve to magnify the existing oversupply problem.

The Beijing policy offers subsidy of RMB750 ($120) per gross tonne for the recycled ship, and the same level of subsidy will apply for the replacement newbuilding that must be built at Chinese yards.

The policy states that the total tonnage of the newly ordered ships should not be less than the total tonnage of the vessels scrapped. Shipowners can choose to tabulate their tonnage based on a cumulative basis from all the scrapped vessels and newbuildings or on a one-for-one basis.

Posted 23 June 2015

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